Whether because of poor Arab-Israeli relations or just plain poverty, the villages and towns of the West Bank and Gaza are largely phoneless. And to avoid being put on a 100,000-person waiting list, the affluent and some in the middle class have taken to toting expensive cellular phones.

In their rush to economic prosperity and push for political identity, many Palestinians crave to connect by phone. To that end, last year Yasser Arafat's Palestinian Authority (PA) helped establish the Palestine Telecommunications Company, known as Paltel, which says it is ready to open for business soon. Eventually, it wants to be able to hook up customers within days of receiving their requests.

By contrast, many Palestinians say that under Israeli occupation applications for phone service went unanswered. Some waited on lists for up to 10 years, Paltel officials say. Other Palestinians went without a phone rather than show up at the loathed Israeli Civil Administration to apply for service.

Despite uncertainty about the fate of the peace process under Israel's new prime minister, Benjamin Netanyahu, Paltel shows no signs of putting its plans on hold. But the tasks that lie ahead are enormous and not as far removed from the political sphere as Paltel might like.

No phones, no connection

Only 80 of 400 Palestinian villages have phone service, says Muhammad Mustafa, the company's executive general manager. Virtually all of those are still under Israeli occupation, since the interim peace accords called only for the removal of Israeli troops from major Palestinian population centers - seven West Bank cities and Gaza.

"How can so many people live so isolated?" Mr. Mustafa asks. "The social and economic implication of this is huge," he adds, speaking at Paltel's headquarters in Nablus.

In the lobby downstairs at Paltel, a bright red, London-style telephone booth looks incongruously stylish in a place where public telephones are almost nonexistent - a problem Paltel also hopes to fix.

Other obstacles include the lines themselves, an old decaying patchwork of cables that includes additions not just from the Israelis but from the Egyptians, the Jordanians, and even the British - all of whom have controlled parts of the area.

The inadequate lines will soon be replaced with the help of $65 million that Paltel raised in an initial public offering on the stock market.

Mustafa says most of the lines Israel installed were meant to service the Jewish settlements, not Arab areas. Furthermore, some of the transmission equipment the Palestinian Authority legally inherited from Israel as part of the Oslo peace accords is in Jewish settlements - and therefore off-limits to Palestinians.

The settlements pose other problems for Paltel, especially since it plans to offer cellular phone service of its own. The settlements typically occupy high points in the hilly West Bank, taking prime spots Paltel needs for cellular transmission towers.

Even as the firm prepares to connect local calls, it will still have to use Israeli company Bezek for its long-distance service. This irks Palestinians, because Bezek has already cut off long-distance service to Palestinian areas at least twice, claiming nonpayment. The PA has an outstanding but disputed bill of 10 million to 15 million shekels (up to $5 million).

What's in a code?

While Palestinians want their own international access code, thus far they are prohibited from having one and may have to wait for a "final status" settlement with Israel to gain it.

Bezek spokesman Roni Mandelbaum explains: Under the Palestinian-Israeli peace deal, Palestinians "are not entitled to any signs of sovereignty, such as an international code," he says. "They have to rely on the infrastructure we supply them."

It is an issue for further negotiation. But the Netanyahu government, which opposes Palestinian statehood, is unlikely to yield ground on matters that give de facto independence.

In some ways, seemingly benign communications arrangements highlight many of the thorniest issues that Israelis and Palestinians will grapple with in the future.

For Palestinians, a phone company and an international dialing code may be mostly about convenience and freedom, and only somewhat about political recognition.

But for Israelis, these touch on key principles of sovereignty, statehood, and security. Phone records have allowed Israeli intelligence to track Palestinian militants. In an infamous case, Israel does not deny that it killed Arab bombing mastermind Yehiya Ayyash - "the engineer" - using a bomb in his cellular phone.

Paltel's first aim is to provide service to those on the waiting list. Next comes a fiber-optic network. And Paltel is looking for an "international partner" to provide cellular service.

Confidence is high: When Paltel's shares start trading on the Palestine Securities Exchange, they're projected to be a blue-chip stock.